Daily Form June 25, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY JUNE 25, 2010       06:42 ET




Sometimes the next move for equities seems obvious - and that always tends to make me suspicious.
The S&P 500 futures are trading at 1068, near the electronic session lows, during trading in Europe this morning.
I have placed an arrow at the point where the mid June rally would have been expected to run out of steam - and it did just that. Now we seem headed towards a test of the level indicated by the dashed line, and as seems likely a thorough test of the 1040 region. The question is, of course, what happens next?
Something tells me that a collapse would seem to be too unimaginative for those who specialize in the arcane maneuvers of inter-market arbitrage strategies.



I have closed out my entire short position in AUD/JPY for the time being as the reaching of the bottom of the cloud satisfied my targets.
It may well be that a definite break below this level could see us headed toward the 75 level along with a little bit of panic as and when the S&P 500 reaches lower, but with more than 350 pips of gain in total on this trade this week it’s better not to overstay one’s welcome.



In early European trading sterling had a spirited attempt to move back towards a test of the $1.50 level and failed at around $1.4960. GBP/USD is one of my favorite FX pairs to trade, as surges upwards with a topping out before the target is reached are almost always a profitable signal to get short.
The first line of support would appear to be at the 1.4820 level as indicated by the arrow, with a reasonable chance that $1.4750 could be seen later today.



The 240 minute chart for spot gold illustrates the usefulness of using key Ichimoku levels to anticipate inflection points.
Earlier in the week there was a noticeable drop below a key trendline on the 60 minute chart and I would like to see the metal break above the dotted line around $1250 today. If it can, I suspect that we could see a quote with $13 as the first two digits before too long.


Daily Form June 24, 2010


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY JUNE 24, 2010       06:08 ET




The comments regarding the S&P 500 made here on Tuesday pretty much have matched exactly the progress of the index over the last 48 hours.
The 240 minute chart below showing the S&P futures at the time of writing (5am Eastern Time) on Thursday show that the 1080 level has been penetrated and this sets up the possibility that eventually the market needs to robustly test the 1040 region again (which it did only half-heartedly earlier in June)
The bears have had it their own way for the last three sessions and I would not be overly anxious to chase the market down at this point but rather wait to see the quality of any rebound towards the 1090 level at which point the short side would again seem more attractive.



By touching the 100 day SMA located midway through the cloud on the 240 minute chart AUD/JPY has satisfied my target for half of the position initiated earlier in the week at 80.65. With a gain of 280 pips, the trade has (at least so far) yielded a 2.8:1 reward to risk ratio as my stop loss from the entry risked 100 pips.



USD/JPY has paved the way for the retreat in risk appetite over the last few sessions. The break below 90.40 has brought the levels from May just above 89 in contention. Also possible is a re-test of the May 6th low - the day of the flash crash - which reached down to 87.96.
As always the strengthening of the yen has wide repercussions for the FX carry trade and recent action suggests that funds have been unwinding trades and de-leveraging in other risk trades.



Looking from a longer term perspective at the weekly chart of USD/CHF, it is evident that 1.0940 is a key support level for the US dollar against the Swiss currency. The long flat top of the cloud illustrates that this level has been pivotal for the currency pair.

The question lingers as to whether the chart below indicates that this has already provided support or still needs further testing. The suspicion is that the latter is the case.
Based on the recently strong inverse relationship between global equities and the US dollar, it will be worth monitoring the USD/CHF pair for clues as to whether we are on the verge of another move up in the US dollar which will be associated with further weakness in US equity indices, or whether the rescue attempts to get the S&P 500 above 1100 again may prevail in the near term.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JUNE 24, 2010


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





ACWI  iShares MSCI ACWI Index  

ACWI, the exchange traded fund which tracks the MSCI All Country World index, illustrates a common characteristic of many sector and index charts which is the confluence of several key levels.

The 50 and 200 EMA days are interwoven and the recent attempt for the index to maintain closes above the 200 day EMA shows that there is a fairly intense battle taking place between, the fact that many investors/asset allocators are clearly shunning equities at present, whereas there is a constituency which is keen to try to protect current levels lest the next shoe drops in the ongoing and ubiquitous process of asset deflation.




DBC  PowerShares DB Commodity Idx Trking Fund  

DBC, a sector fund tracking overall commodity prices, has fallen out of a rising channel after failing to reach up to the cloud formation just above a clear line of resistance at 22.80.




EWZ  iShares MSCI Brazil Index  

The chart for EWZ, which tracks the MSCI Brazil Index, bears a strong resemblance to the chart for ACWI and the fact that yesterday's close sits astride the confluence of both the 50 day EMA and the 200 day EMA, as well as the bottom of the cloud, serves to underline that global equities are quite critically poised at present.

With this in mind I would prefer to minimize exposure to equity indices for the time being, and monitor the developments in FX carefully, and wait for the directional uncertainty to be resolved before deciding on the appropriate stance and outlook regarding equities in the intermediate term.




XLF  Financial Select Sector SPDR  

The daily chart of XLF, the exchange traded fund for the financial services sector, clearly reveals the break of the uptrend lines from early June which is seen on many charts.
No real comfort can be taken from the MACD chart segment and the February low seems to be a feasible target in the longer term.




CYB  WisdomTree Dreyfus Chinese Yuan  

The stated objectives of the sector fund, CYB, are "to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar."
The fund is worth consideration in the light of recent news from the Chinese bank, but as the chart reminds us the removal of the peg to the dollar means that both upward and downward adjustments are to be expected. Interestingly the last three sessions have seen strong volume and downward moves, which suggests that those who jumped in on Monday have been faded in yet another example of gap and trap .




KRE  SPDR KBW Regional Banking  

KRE, a sector fund which follows the KBW Regional Banking Index, shows a descending wedge pattern with a key support level at $23 which seems a likely target for testing in coming sessions.




XRT  SPDR Retail ETF  

XRT, an ETF for the retail sector, has bounced twice off the 200 day EMA with hammer candlesticks, and with reasonably supportive MACD characteristics I would be looking for a move back towards the $40 level.



Daily Form June 22, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY JUNE 22, 2010       06:30 ET




The S&P 500 performed as suggested here yesterday with a classic gap and trap move designed to fade the enthusiasm regarding the PBOC announcement - which in the big scheme of things, and on more time to digest the implications, may not be as momentous as some commentators have claimed.

In electronic trading during the European session this morning the mini futures contract for September is continuing to erode as the chart below reveals. An ambitious but reasonable target for trading today would be 1093, and if that fails then 1080/1085 is back in play - which would be troubling for those of a bullish persuasion.



Obeserving the EUR/USD currency pair this morning the break of a clear uptrend line provided a signal for new shorting opportunities. The near term target for scaling out 50% of the position would be 1.2205 and the remaining 50% could remain, on a trailing stop loss basis, with a target of $1.2150 as indicated by the arrow on the chart.



I have discussed the unusual relationship between the USD/JPY exchange rate and the animal spirits previously. The fact that the Japanese yen is strengthening quite considerably as this is being written, and approaching a test of the fairly critical level around 90.40, suggests that today could be quite consequential for US equities and risk assets in general. The bulls will have to tweak the algos to protect this level today as a definitive breakdown below this level would be bearish for equities and FX carry trade inspired plays in general.

Also worth monitoring is the AUD/JPY rate which is currently 140 pips below where I established the short position initiated and discussed here yesterday. The current longer term target for the Aussie/yen cross is 77.60


Daily Form June 21, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY JUNE 21, 2010       05:38 ET




The opaque announcement over the weekend, prior to the G20 meeting in Toronto this week (surely just a coincidence) that the PBOC (Peoples Bank of China) is prepared to tolerate marginal adjustments in the exchange rate between the renminbi and the US dollar has been seized upon by equity bulls in Asian trading Monday and extending into the European session at the time of writing.
In particular the DAX is now above 6300 with a 1.3% rise although some of the enthusiasm appears to be waning.
Is the Chinese decision (if it in fact is a decision) a positive for risk assets and a step in solving global imbalances? According to perma-bull Jim O’Neill at Goldman Sachs it is. But to quote the old joke Mr. O’Neill has never met any development in the BRIC nations that he didn’t like.

My concern is that US equity markets have already discounted a lot of very good news and been very ready to push doubts about the robustness of the global recovery aside. What better indicator of this than the descent of the VIX back to its 200 day EMA?
Although not featured today, the S&P futures at present are trading at 1126 which is a sizable move up from Friday’s close but with some cloud resistance at 1134 on the daily chart there is a possibility of a gap and trap move today for US traders.



The Hang Seng index moved up more than 600 points on the PBOC announcement and should be able to test the top of the cloud formation at 21000. If the bulls can sustain this burst of energy then there is the possibility that the death cross highlighted in yellow could be reversed in coming weeks, but that remains, in my estimation, a big "if".



As mentioned here last week since AUD/JPY has reached the target level of 80 I have been stalking entry points on the short side. The current action is an almost parabolic rise - which makes the timing of the entry more critical and I have just opened a short position at 80.65 and, since I favor this as a longer term positional play, I will plan to add further to that as the day proceeds.
Since the Ichimoku chart suggests that a move towards 81.50 is possible in the near term the clear evidence of a flat cloud top at 80 suggests that the risk/reward calculus favors the short side.
I would exit the accumulated position on a break above 81.60 which is a risk of 100 pips (more than I would normally use) as I believe the downside reward when it comes could be considerable.



On the last occasion that I discussed the Nikkei 225 in this commentary I proposed an upside target of 10,250 and that is almost exactly where today’ session closed. The close is exactly at the 200 day EMA and similar comments to those made regarding the Hang Seng apply with respect to the death cross on this chart. A move above 10,800 could reverse the paths of the two EMA’s but there is also the risk that in so doing the trajectory being followed would begin to resemble the right shoulder of a fairly well defined H&S pattern.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY JUNE 21, 2010


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





SPOT GOLD    

In line with my earlier remark that the VIX is beginning to indicate too much complacency, the chart for gold continues to act as a fly in the ointment for central bankers and policy makers. My sense is that the price of gold will track the rise in equities very closely and the swifter the rate of ascent of risk assets the sharper the rise in gold.
The dotted line on the hourly chart shows the key support line for the metal and it is worth noting how closely it follows the base of the green cloud. The $1340 target set here last October may not be too far off.




ACWI  iShares MSCI ACWI Index  

I would expect ACWI, the exchange traded fund which tracks the MSCI All Country World index, to reach up to $42 in today's session but would then look to stand aside.




XME  SPDR Metals and Mining ETF  

Based on the market's reaction to the PBOC announcement I shall stand by the call on XME made here last week


From here upwards the risk/reward ratio increases but if risk appetites are back in favor we could potentially see a move up to the cloud formation.





TTWO  Take-Two Interactive Sft.  

Last week the suggestion was made that for TTWO the pullback phase may be completing in the near term. Further weakness may lie ahead.




EWY  iShares MSCI South Korea Index  

Again as follow through to last week's suggestions the position for EWY is worth restating


Of the many geographical sector funds which are tracked daily, EWY, which tracks the MSCI South Korea index, has a more positive tone than most. The $49 level would seem like a feasible near term target for 50% of the position with a trailing stop on the remaining 50%.




Daily Form June 17, 2010


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY JUNE 17, 2010       07:09 ET




The S&P 500 managed to tip its hand in favor of the bulls as it pushed decisvely above the 1100 level in Tuesday’s session and now seems to be ready to confront another key test at 1120 which is the level of the 50 day EMA which is just above the highlighted doji/hanging man hybrid candlestick formation which resulted from yesterday's trading.
My intuition is that there has not been a lot of enthusiasm behind the move up from the 1040 level, which itself was not really tested robustly, and that much of the move has been motivated by the relentless retreat of over zealous short sellers when they smelled blood earlier in June.
Nonetheless the short side of equities for the time being is likely to remain frustrating and I would only commit new funds to the short side of the S&P futures on a closing break below 1080.



EUR/CHF is retreating to its lowest ever levels since the advent of the single currency and the long side has the characteristics of a relatively attractive risk/reward ratio.



The Australian dollar -AUD/USD - seems to have stalled at current levels and the recent peek below the trend-line indicated on the chart and the cloud formation, could portend the beginning of a corrective move following the sharp rally since the late May and early June lows.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JUNE 17, 2010


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





ACWI  iShares MSCI ACWI Index  

ACWI, is an exchange traded fund which tracks the MSCI All Country World index, and was discussed in Tuesday's column. Yesterday's close is still located at the point where the 50 day EMA has intersected with the 200 day EMA.
As one of the broadest asset indices this chart indicates that the current market environment is one where the longer term direction for equities remains at a cross roads.




MHP  The McGraw-Hill Companies Inc.  

McGraw Hill (MHP) is likely to make a little more progress to the upside but I would suggest exiting at the point indicated by the arrow.




XES  Oil and Gas Equipment Services ETF  

XES, an exchange traded fund for the Oil and Gas Equipment Sector, has also rallied exactly to the death cross level and expecting further upward progress in the near term, if one happens to be long this fund, looks risky.




TTWO  Take-Two Interactive Sft.  

TTWO registered a doji star as it attempted to move above the cloud formation in yesterday's trading and, in the context of the recent steep drop on very heavy volume, the suspicion is that the pullback phase may be completing in the near term.




HAL  Halliburton Company  

Haliburton (HAL) has a fairly well defined bear flag pattern.




EWY  iShares MSCI South Korea Index  

Of the many geographical sector funds which are tracked daily, EWY, which tracks the MSCI South Korea index, has a more positive tone than most. The Kijun Sen moved above the Tenkan Sen yesterday (for Ichimoku aficonados, there are explanations of all of these terms available with our premium subscription service) and the $49 level would seem like a feasible near term target for 50% with a trailing stop on the remaining 50 long position.



Daily Form June 15, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY JUNE 15, 2010       06:58 ET




The S&P 500 ran into serious resistance at the 1100 level in yesterday’s session and eventually retreated towards the 1085 level where there is clear support.
At the time of writing the futures have returned to the 1094 region which is really the pivotal level for the index and leaves the issue of the near term direction unresolved.
The manner in which certain markets rallied including the euro and the S&P futures in European trading this morning, so keenly after the announcement that Greek debt is now "officially" of junk status seemed just a little too much a case of traders proving how they had already discounted this "old news".
A sobering assessment of the political problems facing European leaders can easily be gleaned from recent developments in Belgium, Netherlands, and according to the Guardian newspaper, Angela Merkel’s coalition is being held together by a thread.
Perhaps the markets are under-estimating the fragility of the great European experiment!



USD/JPY is at a fairly critical level in trading in Europe this morning. A break below the 91 level would take out a key trend line on the 240 minute chart and would also lend evidence to the hunch that the current flirtation with risk assets may be nothing more than promiscuity rather than a re-kindled and meaningful affair.



I will be a seller of AUD/JPY at the 80 level.



The candlestick formation on the chart for the Russell 2000 highlights the rejection at the 660 level which was discussed here last week. If equity markets are gearing up for a real rally as opposed to some algorithmically inspired inter-market shenanigans then one would expect to see some more vitality from the small cap sector.
A decisive close above 660 on this index would make me more persuaded of a short term bullish case for equities - at present I remain unconvinced with a leaning towards the view that all of the death crosses on sector charts are telling us something.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JUNE 15, 2010


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





ACWI  iShares MSCI ACWI Index  

ACWI, is an exchange traded fund which tracks the MSCI All Country World index, and it is one of many sector charts revealing the death cross formation i.e. where the 50 day EMA has crossed the 200 day EMA from above.




EWA  iShares MSCI Australia Index  

Last week I mentioned the following with respect to Australian equities


EWA recommended here yesterday gapped up on the open but managed a five percent plus move and may still have further to go towards the arrow indicated on the chart.

In yesterday's session, EWA went almost exactly to the arrow and then retreated - I shall now be sitting on the sidelines with respect to this fund.





EWZ  iShares MSCI Brazil Index  

The chart for EWZ, which tracks the MSCI Brazil Index, also uncannily illustrates how the sector fund ran into resistance at exactly the point where the death cross manifested itself on the daily chart.
The BRIC sector fund, BKF, is also showing exactly the same feature.



Daily Form June 14, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY JUNE 14, 2010       07:24 ET




Today’s commentary will be brief because the objectives on three key charts which were discussed here last week have all been met and accordingly my sense is that the market has reached a critical decision point.
The S&P e-Mini futures is exactly at the 1093 level which represents an area of possible resistance and from which the moves over the next couple of sessions will clarify whether the market is ready to cast aside the lingering doubts about the anemic recovery and re-build back towards 1140 or whether the recent rally runs out of steam.
Rather than speculate I shall be watching from the sidelines until the direction of travel becomes clearer.



EUR/USD finally broke through the $1.22 level in Asian trading on Monday as it was unable to do so in Friday’s North American session.
The current level in the neighborhood of $1.2240 strikes me as one where new sellers may emerge notwithstanding the fact that on the 240 minute chart the euro has managed to peek above the 100 period moving average as highlighted on the chart.
Once again this is a critical area for the currency pair and the risk/reward calculation at this stage is uncertain enough to confine my trading activities to short term scalping with a tendency toward shorting the euro on any spikes upwards.



The third chart is for AUD/USD which also has fulfilled an intermediate term objective and where some consolidation or pullback now seems imminent.


Daily Form June 11, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY JUNE 11, 2010       06:02 ET




There has been a notable change across the asset class spectrum in the last 72 hours indicating that risk appetite is increasing.
The S&P 500 rallied strongly off the open yesterday as expected, then entered a complex consolidation phase which lasted most of the middle part of the session, and then closed with a late rally.
From my Twitter account yesterday I suggested that there were twin targets which I now believe are in play for today’s session

1. The S&P 500 cash index will need to break above 1094 - which I suspect it can do - but will then find stiffer resistance at 110, which, as the chart below illustrates, is also the level for the 200 day EMA
2. I believe that the euro will attempt a challenge at the $1.22 level in today’s session.

Since there is some inter-connection between the two events and since I expect that EUR/USD will encounter stiff resistance starting from $1.2185 up to $1.22, it would not be surprising to see both stall at the levels suggested in the near term.



EUR/GBP has been very volatile but is still showing a tendency to want to go higher and if the cross rate can decisively break above .8280 - the level indicated on the 30 minute chart below - then further progress back towards 0.8380 should be expected in the coming sessions.



GBP/USD has risen steeply over the last two days and I would suggest that it has now put in an intermediate term top, which would be confirmed once the dotted trend-line is convincingly broken.
I would suggest that the first area of support will be the top of the cloud formation around 1.4640 and then further support at $1.4580.



As the appetite for risk assets grows again (for how long is debatable) then the US 10 year note yield should move back towards 3.5%.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JUNE 11, 2010


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





XME  SPDR Metals and Mining ETF  

A short term scalp with XME discussed here yesterday moved up to the $50 level as expected. From here upwards the risk/reward ratio increases but if risk appetites are back in favor we could potentially see a move up to the cloud formation.




TBT  Ultra Short Lehman 20 Plus ProShares  

The chart for TBT, which moves in tandem with increased yields on long term US Treasuries, suggests that a feasible target in coming sessions would be the 50 day EMA (the red line) which is in the vicinity of $42.50.




WSM  Williams-Sonoma Inc  

The chart for Williams Sonoma (WSM), which I drew attention to last Friday as a candidate for the short side, proves, yet again, how useful the cloud formations are in setting entry/exit targets.
Notice how Tuesday's candlestick peeked below the cloud but came to a close just above the cloud.
A profitable trade would have resulted from an entry at last Friday's open, subsequent to entry within the cloud and with an exit on Tuesday's close after peeking below the cloud.




EWA  iShares MSCI Australia Index  

EWA recommended here yesterday gapped up on the open but managed a five percent plus move and may still have further to go towards the arrow indicated on the chart.